Final answer:
The portion of the management fee based on the profitability percentage is called an incentive fee. It is a variable fee that motivates managers to exceed profit targets.
Step-by-step explanation:
The portion of the management fee that is based on a percentage of a negotiated level of profitability is known as an incentive fee. Unlike a base or fixed fee, which is predetermined and stable, the incentive fee is a variable fee designed to reward the manager for surpassing certain profit targets. In essence, the higher the profitability under the manager's guidance, the greater the incentive fee. This fee structure aligns the manager's interests with those of the investors or business owners, as it encourages managers to aim for higher performance.